Consumer Price Index Increases By Most Since 2009

(Bloomberg News) The cost of living in the U.S. climbed in August by the most in more than three years, reflecting a surge in fuel costs.

The 0.6 increase in the consumer-price index was the biggest since June 2009 and followed no change in the previous month, the Labor Department reported today in Washington. The median forecast of 85 economists surveyed by Bloomberg News called for an advance of 0.6 percent. The core index, which excludes volatile food and fuel costs, climbed a less-than- projected 0.1 percent for a second month.

Limited job opportunities and low wages make it harder for companies to pass along higher commodities prices to their customers. Persistent joblessness along with few signs of a pronounced pickup in inflation allowed Federal Reserve policy makers to take another step yesterday to boost the expansion.

"I think inflation will remain benign for some time," Ryan Sweet, a senior economist at Moody's Analytics Inc. in West Chester, Pennsylvania, said before the report. "The consumer's still very, very price-sensitive, and rightfully so because the unemployment rate's high, wage growth is barely keeping up with inflation."

Average hourly earnings adjusted for changes in prices decreased 0.7 percent in August from the previous month, the biggest drop since June 2009, today's report showed. Real wages were unchanged from August 2011.

Stock-index futures maintained gains as markets rallied around the world on the Fed's bond-purchase program. The contract on the Standard & Poor's 500 Index expiring in December rose 0.2 percent to 1,453.8 at 8:49 a.m. in New York.

Economists' consumer-price index estimates in the Bloomberg survey ranged from gains of 0.2 percent to 0.9 percent. Economists forecast a 0.2 percent gain in the core index, according to the survey median.

The Labor Department said that 80 percent of the increase in the consumer price index was due to a jump in gasoline costs.

Consumer prices increased 1.7 percent in the 12 months ended in August, the report showed. The core CPI climbed 1.9 percent over the past 12 months.

Energy costs increased 5.6 percent from a month earlier, the most since June 2009, while food prices rose 0.2 percent. Prices of gasoline jumped 9 percent, while fuel oil was up 4.6 percent in August.

Inflation was restrained in August by decreases in the costs of used vehicles and clothing.

U.S. consumers and businesses may soon feel the effects of higher food prices after the worst drought in the Midwest in 76 years damaged crops and rural economies.

Consumers may find it more expensive to travel as fuel prices climb. Airlines suffered a "dramatic drop" in revenue over the last 10 years compared to other parts of the travel industry and can help their recovery by raising costs, J. Scott Kirby, president of Tempe, Arizona-based U.S. Airways Group Inc., said at a Sept. 6 conference.

"We've gotten much better in the last four or five years at being able to pass on fuel prices to the consumer," Kirby said. "There's a lot of room for average fares to increase without driving business away, and that's really where air fares can go up."

The CPI is the broadest of three price gauges from the Labor Department because it includes goods and services. About 60 percent of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.

Producer prices climbed a larger-than-forecast 1.7 percent in August and the import-price index rose 0.7 percent, the first increase in five months, reports showed earlier this week.

With the aim of stoking the economy and driving down unemployment, Fed officials announced yesterday open-ended purchases of mortgage-backed securities and a plan to keep interest rates "exceptionally low" through the middle of 2015.

"We're looking for ongoing, sustained improvement in the labor market," Chairman Ben S. Bernanke said in his press conference in Washington following the conclusion yesterday of a two-day meeting of the Federal Open Market Committee. "There's not a specific number we have in mind. What we've seen in the last six months isn't it."